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Justices Pass on Tax Case From Online Merchants

An Amazon.com fulfillment center in Phoenix. The company had challenged New York’s law.Credit
Ralph D. Freso/Reuters

WASHINGTON — The United States Supreme Court on Monday let stand a ruling from New York’s highest court requiring Internet retailers to collect sales taxes even if they have no physical presence in the state.

As is their custom, the justices gave no reasons for their decision not to hear the case, which involved Amazon.com, the online giant, and a smaller competitor, Overstock.com. The two companies challenged a 2008 state law that required online companies to collect sales taxes on purchases made by New York residents.

Brick-and-mortar companies often complain that they are put at a competitive disadvantage when they are required to collect sales taxes and online companies are not.

In March, the New York Court of Appeals ruled that the companies had a sufficient presence in the state because of affiliated independent sites that linked to the retailers in return for a commission. “The bottom line,” Chief Judge Jonathan Lippman wrote for the majority, “is that if a vendor is paying New York residents to actively solicit business in this state, there is no reason why that vendor should not shoulder the appropriate tax burden.”

The chief judge added that it might be time to reconsider the basic rule that states may not collect taxes from out-of-state companies without some physical presence in the state, a principle recognized by the United States Supreme Court in its 1992 decision in Quill Corp. v. North Dakota.

“The world has changed dramatically in the last two decades,” Chief Judge Lippman wrote, “and it may be that the physical presence test is outdated. An entity may now have a profound impact upon a foreign jurisdiction solely through its virtual projection via the Internet. That question, however, would be for the United States Supreme Court to consider.”

Monday’s order indicated that such reconsideration must wait. The cases were Overstock.com v. New York Taxation Department, No. 13-252, and Amazon.com v. New York Taxation Department, No. 13-259.

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In a statement, Amazon urged Congress to act to impose a national solution. “The Supreme Court already has addressed the sales tax issue, saying in Quill that Congress can and should act to resolve it,” the statement said. “The Marketplace Fairness Act now pending before Congress would protect states’ rights to make their own revenue policy choices while allowing them to collect more than a fraction of the revenue that’s already owed.”

For now, Amazon has been making some state-by-state accommodations. It has struck deals in several states to build warehouses in exchange for agreeing to collect taxes. According to its website, Amazon collects taxes in 16 states, including California, Connecticut, New Jersey, New York and Texas.

“The decision below,” he wrote, “leaves in place a state law that will significantly and unduly burden interstate commerce, provides a road map for other jurisdictions to inflict similar burdens on interstate commerce and threatens to sow widespread confusion in an area that is — in the best of times — already ‘something of a quagmire,’ ” he wrote, quoting from the Quill decision.

“Although sales taxes are indisputably owed when a New York resident purchases goods from an out-of-state retailer for delivery in-state, the overwhelming majority of those purchases are never reported to the state taxing authorities, and hence taxes on them are never collected,” she wrote. The law, she continued, “seeks to restore a level playing field between in-state brick-and-mortar stores and their out-of-state Internet-only counterparts.”

A version of this article appears in print on December 3, 2013, on Page B3 of the New York edition with the headline: Justices Pass On Tax Case From Online Merchants. Order Reprints|Today's Paper|Subscribe